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2016 (9) TMI 706 - GUJARAT HIGH COURT

2016 (9) TMI 706 - GUJARAT HIGH COURT - TMI - Reopening of assessment - provision for bad debts undisclosed - Held that:- The petitioner was asked to furnish details regarding the claim of bad debt written off. It is also found from the record that the same has been cogently explained and replied and therefore, while completing the scrutiny assessment, this issue has been gone into by the Assessing Officer and the perusal of record further indicates that while assessment order came to be passed, .....

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evenue authority. We have taken note of the contents stated by the deponent on behalf of the revenue contained in additional affidavit submitted before the Court. It was categorically stated by the deponent on additional affidavit that on account of workload and pressure of various files getting time barred asessement of various assessees and on account of corporate assessees being under jurisdiction of that Assessing Officer he had categorically deposed that he could not incorporate the details .....

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sible for respondent-authority to reopen the assessment otherwise the same would be based on change of opinion - There is no tangible material available to justify the reopening more particularly when the issue has been gone into in detail during the course of regular scrutiny assessment, it is hardly justify for the revenue to reopen the issue which has relied upon, examined and even if it is within a period of four years. The ratio laid down by the aforesaid decision referred to above woul .....

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itate further on account of main action on part of the respondent authority. Hence, the impugned notice dated 16.12.2009 and letter dated 06.08.2010 are hereby quashed and set aside. Rule is made absolute. - Decided in favour of assessee. - SPECIAL CIVIL APPLICATION NO. 10355 of 2010 - Dated:- 31-8-2016 - MR. AKIL KURESHI AND MR. A.J. SHASTRI, JJ. FOR THE PETITIONER : MR MANISH J SHAH, ADVOCATE FOR THE RESPONDENT : MR KM PARIKH, ADVOCATE (PER : HONOURABLE MR.JUSTICE A J SHASTRI) 1. The petitione .....

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he assessment year 2005-06 on 31.10.2005 showing total income of ₹ 24,41,300/- and the said return has been submitted alongwith a detailed computation of income, copy of accounts including profit and loss and balance sheet and in addition thereto, a copy of audit report under Section 44AB. 3. The petitioner was, during the assessment proceedings, asked to furnish detail particulars by way of issuing notice under Section 142(1) on 29.01.2007 inter alia asking the petitioner to clarify 17 po .....

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fied, the Assessing Officer did not disallow it by adding it back in the computation of income and has passed assessment order under Section 143(3) on 29.10.2007. The said scrutiny assessment has considered the issue pertaining to bad debts written off and its justification. The Assistant Commissioner of Income Tax, Circle IV then became the Assessing Officer of the petitioner and had issued notice under Section 148 on 16.12.2009 under the Income Tax Act stating that he has reason to believe tha .....

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y supplied reasons which were recorded on 04.12.2009 under the communication and cover of letter dated 05.03.2010. Having gone through the reasons initially, the petitioner has challenged the said notice under Section 148 by way of filing writ petition being Special Civil Application No. 6461 of 2010. However, since the procedure which was contemplated having not observed by the petitioner as has been laid down in the decision of Supreme Court in case of GKN Driveshafts (India) Ltd. vs. Income T .....

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HAFTS (INDIA) LTD. V/s. INCOME-TAX OFFICER AND OTHERS reported in 2003 ITR 19, the petition is not required to be entertained, more particularly, as the impugned notice has been issued within a period of 4 (four) years from the end of the relevant assessment year. 2. Hence, without entering into the discussion and the merits of the issue involved, the petition is rejected for the afore-stated reasons. 3. Petition is accordingly summarily rejected. 5. It appears from the record that thereafter, u .....

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ould nothing but mere a change of opinion which is not permitted. While canvassing the point in the objection, it has also been relied upon a decision in case of Commissioner of Income Tax vs. Kelvinator of India Ltd. reported in 320 ITR 561 and after considering the ratio laid down by the said decision, the petitioner had raised an objection that the impugned action is impermissible. 6. The petitioner has pointed out that the said objections which have been raised have not been properly conside .....

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tentions in the context of those reasons. Hence, the same is reproduced herein: It is noted that the assessee had written off bad debt at ₹ 7,24,721 in its profit and loss account. Perusal of the details, it was noted as under:- Provision made for bad debt ₹ 26,03,738 Add: Various accounts written off (Rs. 4387+Rs.15588+Rs.27033+Rs.450) ₹ 51,549 ₹ 26,55,287 Less:Provision at the beginning of the year i.e. as on 1.4.2004 ₹ 19,30,566 ₹ 7,24,721 From the above de .....

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irrecoverable, there would not be addition of ₹ 7,24,721 in provision of bad debt as on 31.3.2005. The bifurcation of ₹ 7,24,721 debited to the profit and loss account is as under (as per ledger account filed) Amount actually written off from accounts of various customers ₹ 51,549/- Amount added to provisions of bad and doubtfull debt. ₹ 6,73,172/- ₹ 7,24,721 /- Therefore the amount of ₹ 6,73,172 is not allowable deduction as per Explanation to section 36(1)(v .....

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ame of Debt Amount Remarks 1 Security 3000 Deposits not Deposit(mobile) passed through profit and loss account and not part of assessable income earlier. 2 Telephone deposit 1540 -do- 3 Baroda People's co.op Bank 27033 Rs.165122 (O/D A/c. Facility) as on 1.4.2004 receipt ₹ 16,500 (1.4.2004) (Rs. 2.00 lakh F.D.a/c. Dated 31.3.2005). Interest paid ₹ 24,314 (29.5.2004) loan amount not passed through profit and loss account. Therefore, sum of ₹ 31,573 (out of ₹ 51,549 of .....

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e. It was contended by the counsel that in scrutiny assessment, while dealing with an issue of bad debts written off thorough examination has taken place. It is only thereafter, the assessment order came to be passed and therefore, to permit the petitioner to reopen that issue would be nothing but merely on the basis of change of opinion which is impermissible in view of series of decisions. 9. Counsel for the petitioner further drawn attention of the Court contending that, in the original retur .....

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so the petitioner was asked to furnish the details on the date of hearing regarding issue of bad debts written off and its justification. Counsel further drawn our attention to the detailed reply which has been submitted in response to the said notice which is produced at page 52 of the petition compilation wherein specifically an explanation was tendered regarding bad debts issue written off during the year. In the said communication, on the provision of bad debt is kept and projected and is al .....

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nt. By taking us to these documents, which are part of the record, counsel has submitted that the issue pertaining to bad debts is thoroughly gone into by the Assessing Officer and therefore, there is no justification in reopening the issue which has already been thoroughly gone into. Learned counsel for the petitioner has submitted that in the objections which have been raised, the case was also put up and cogent explanation was given under a letter dated 23.07.2010 which is part of petition co .....

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further drawn the attention that simply because the issue has not been incorporated in detail, it cannot be presumed that it has not been dealtwith at all. While contending this, counsel for the petitioner has relied upon the affidavit filed by the Deputy Commissioner of Income Tax in the form of additional affidavit dated 25.10.2010 wherein in para 1 it has clearly stated that on account of paucity of time and heavy workload, the Assessing Officer could not incorporate the details of bad debt w .....

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if it is within a period of four years. Reliance which has been placed on specific paragraph contained in additional affidavit is reproduced hereafter: 1. I was working as Deputy Commissioner of Income Tax, Circle-4, Baroda, 4th Floor, Aayakar Bhavan, Race Course Circle Baroda from 5.6.2006 to 14.7.2008. I have passed order u/s. 143(3) of the Income Tax Act, 1961 for Assessment year 2005-06 in the case of the petitioner assessee concerned. I further submit that in view of the workload and pressu .....

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bmissions have been made. 10. To oppose the petition, learned counsel for the revenue has mainly contended that the issuance of notice under Section 148 of the Act is within a period of four years and therefore, it is not open for the petitioner to hamper the said process of reopening which is already in contemplation. It was submitted by the counsel for the Revenue that bad debt has merely been provided for written off and there is no actual written off has taken place and therefore, by making .....

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drawn attention of the Court to the contents of affidavit submitted by the department and has submitted that simply because the authority could not incorporate the details of bad debt written off, it cannot be presumed that the same is allowed by the authority. Counsel further submitted that by virtue of amendment which took place under Section 147 w.e.f. 01.04.1989 much power is entrusted to the assessing authority. The assessing authority has certainly the power of reopening after the amendme .....

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se of original assessment but the issue is whether the assessee can make a claim to which it was not entitled to? Since this issue was not dealt with about entitlement of the petitioner, the reopening is perfectly justified in the eye of law and considering these submissions, counsel for the revenue requested the Court to dismiss the petition. 11. Having heard learned counsel appearing on behalf of the respective parties and having gone through the record of the petition in detail, we are of the .....

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lvinator of India Ltd (supra). In the said decision the short question which was paused before the Apex Court was, whether the concept of change of opinion stands obliterated w.e.f. 01.04.1989 i.e. after substitution of Section 147 of the Act by Direct Tax Laws (Amendment) Act, 1987. Therefore, for consideration of the issue paused before the Court, the Apex Court analyzed the entire scheme of Section 147 onwards and have considered the effect of amendment to Section 147. The Hon'ble Apex Co .....

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eason to believe that income has escaped assessment. Only that condition would confers jurisdiction to reopen the assessment. Therefore, the Hon'ble Apex Court found that scope of reopening is no doubt become wider after amendment. However, the Hon'ble Apex Court anticipating the uncontrolled power has categorically stated that the Assessing Officer has no power to review. He has the only power to reassess and then the Hon'ble Apex Court stated that the reassessment also had to be do .....

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oted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, .....

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e Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain precondition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of change of opinion as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-ope .....

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against omission of the words reason to believe , Parliament re-introduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows: 7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression reason to believe' in Section 147.-A number of representations were received against the omission of the word .....

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e the expression has reason to believe' in place of the words for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same. 13. Yet in another decision delivered by the Division Bench of this Court in case of Gujarat Power Corporation Ltd. vs. Assistant Commissioner of Income Tax reported in 2013 (350) ITR 266, the Division Bench has considered this judgement of Commissioner of Income Tax vs. Kelvinator of India Ltd ( .....

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fficer does not reject such a claim but choses not to give any reasons, such a course of action that he adopts had hardly be stated that he did not form the opinion on such a claim. Therefore, when the Assessing Officer during scrutiny assessment notices a claim of exemption deduction for such like made by the assessee having some prima facie doubt raises queries asking the assessee to satisfy him with respect to such a claim thereafter, does not make any addition in the financial year of assess .....

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n note of. Hence reproduced hereafter: 37.Coming to the second question, as recorded, contention of the petitioner is that as in the present case, once the Assessing Officer examines a certain claim of the assessee in the original assessment proceedings, raises queries, receives replies, but thereafter makes no additions or disallowances, without giving reasons, it would not be permissible to reopen the assessment even within four years on very same grounds. The contention of the revenue is that .....

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e change of opinion and that the Assessing Officer must have some tangible material to form a belief that income chargeable to tax has escaped assessment. The concept of change of opinion is not done away with in the newly amended section 147 of the Act. 42. Bearing in mind these conflicting interests, if we revert back to central issue in debate, it can hardly be disputed that once the Assessing Officer notices a certain claim made by the assessee in the return filed, has some doubt about eligi .....

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would have no control whatsoever. Therefore, while framing the assessment, allowing the claim fully or partially, in what manner the assessment order should be framed, is totally beyond the control of the assessee. If the Assessing Officer, therefore, after scrutinizing the claim minutely during the assessment proceedings, does not reject such a claim, but chooses not to give any reasons for such a course of action that he adopts, it can hardly be stated that he did not form an opinion on such a .....

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se, if the Assessing Officer on his own for reasons best known to him, chooses not to assign reasons for not rejecting the claim of an assessee after thorough scrutiny, it can hardly be stated by the revenue that the Assessing Officer can not be seen to have formed any opinion on such a claim. Such a contention, in our opinion, would be devoid of merits. If a claim made by the assessee in the return is not rejected, it stands allowed. If such a claim is scrutinized by the Assessing Officer durin .....

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notices a claim of exemption, deduction or such like made by the assessee, having some prima facie doubt raises queries, asking the assessee to satisfy him with respect to such a claim and thereafter, does not make any addition in the final order of assessment, he can be stated to have formed an opinion whether or not in the final order he gives his reasons for not making the addition. 51. In our opinion, any such reopening would be based on a mere change of opinion. In the reasons, the Assessin .....

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did not record reasons for making no disallowance on such claim of exemption, would be of no consequence. 15. Now in the background of these proposition of law, if we analyze the record of the present petition on hand, it would quite clear that the petitioner was asked to furnish details regarding the claim of bad debt written off. It is also found from the record that the same has been cogently explained and replied and therefore, while completing the scrutiny assessment, this issue has been go .....

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y assessment came to be passed. To arrive at such conclusion, we have also gone through the stand taken by the respondent-revenue authority. We have taken note of the contents stated by the deponent on behalf of the revenue contained in additional affidavit submitted before the Court. It was categorically stated by the deponent on additional affidavit that on account of workload and pressure of various files getting time barred asessement of various assessees and on account of corporate assessee .....

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onsidering this overall view of the matter we are of the opinion that if the records speak like this it would not be permissible for respondent-authority to reopen the assessment otherwise the same would be based on change of opinion and since the change of opinion is already spelt out by this Hon'ble Court and the decision which has been referred to above. In the background of these facts and circumstances we are of the opinion that the case is squarely covered by the ratio laid down by the .....

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fitable to be considered by this Court. Hence, the extract of the same contained in para 12 is reproduced hereafter. 12. Insofar as the second ground for reopening the assessment, namely, deduction under section 54EC of the Act is concerned, it is evident that during the course of proceedings under section 143(3) of the Act, the Assessing Officer had called for details in this regard and the petitioner had produced the certificates issued by the Rural Electrification Corporation Ltd. for a total .....

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tion 54EC of the Act and that against the decision of the Tribunal in the above case, an appeal is pending consideration before the High Court. Thus, it appears that the present Assessing Officer now believes that the Assessing Officer who had framed the assessment under section 143(3) of the Act had made a mistake in allowing deduction in excess of ₹ 50,00,000/- and now wants to correct the mistake. From the facts as emerging from the record, it appears that the Assessing Officer while al .....

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